The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:
BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For further guidance on the impact of Brexit on securitisation, see Practice Note: Preparing for Brexit: Securitisation Regulation—quick guide.
Essentially, securitisation makes use of a receivables income stream through the creation of a special purpose vehicle (SPV) which issues bonds or notes to obtain cheaper finance. It was originally used in the US and is essentially a sophisticated method of factoring receivables. Types of receivables which can be securitised include:
bank loan repayments
credit card repayments
insurance premium payments
Benefits of securitisation include:
cheaper borrowing—the SPV may get a better credit rating than the debtor company (originator). Either the obligors for the receivables have a better credit rating than the originator, or credit rating agents may find it easier to rate a single asset (the receivables) as opposed to the originator, which has more variables. A better credit rating means that the SPV can issue bonds/notes with lower yields so reducing the cost of funding (see Practice Note: Impact of credit ratings downgrades)
balance-sheet improvements—the process accelerates cash receipts for the originator, so rather than having to wait for the receivables to be collected in, it
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